Global leader in lithium-ion batteries invests in what many believe will be the next major lithium producer
There is a very high probability you are reading this on your smartphone, tablet or laptop. If that is the case, you know the value of lithium, because it’s in the battery powering your device.
Until some better storage system comes along, lithium-ion batteries are the industry standard. There is much talk about improving lithium battery performance using platinum group metals, carbon nanotubes etc., but that is not now.
Lithium is not like oil – it’s pretty much everywhere on Earth, according to Elon Musk. But like oil, the devil is in the details – extraction costs are key.
Enter Neo Lithium Corp. (TSXV: NLC | OTCQX: NTTHF), a C$110 million market capitalization company that proudly proclaims to be “the next major lithium producer” with its Tres Quebradas (3Q), located in the Lithium Triangle in South America. The project is located at the southern end of the triangle in northern Argentina.
Source: Neo Lithium
Lithium is mainly sourced via hard rock mining (spodumene) or brine production. The majority of the mining projects are located in Australia while brine production is centered around the Lithium Triangle, which has an estimated 75% of global lithium reserves according to the US Geological Survey, although other reports state that the area only contains just over 50% of global reserves. In any event, the area does account for 40% of global lithium production and 90% of global brine production.
Brine production of lithium in South America is in the high altitude (~4,000 meters elevation) salt flats (salars) in the Lithium Triangle and is accomplished through a pond evaporation process. The Lithium Triangle is ideal for this, as it is characterized by very arid conditions, solar radiation and dry winds, resulting in high evaporation rates. Lithium brine extraction in the area has been underway for more than 25 years, so this is not “new” technology.
Like any commodity, the view to significantly increased demand in the past 5 years resulted in a rush to develop new lithium mining projects. This led to an oversupply situation and a significant downturn in lithium prices in 2019. But, with the rush to electric vehicles, absent any new battery technology, experts anticipate a ten-fold increase in demand for lithium over the next decade and only a three-fold increase in supply in the next five years – demand could outweigh supply and result in significantly higher lithium prices.
OK – now you understand….lithium may be a great place to invest for the future.
Neo Lithium is well on its way to becoming one of the next lithium producers in the Lithium Triangle. The Tres Quebradas project is 100% owned by the company and was discovered in 2015, so this is not something that is just a concept project. A preliminary economic assessment was completed in late 2017 and an updated resource estimate (NI 43-101) was completed in July 2018 with a 227% increase in Measured and Indicated categories. The results of a Preliminary Feasibility Study were announced in March 2019 with a $1.1 billion NPV at 8% discount rate ($587 million NPV at 14%) and an Internal Rate of Return of 50%. In addition, a pilot plant began operations in 2019 resulting in 99.1 % lithium carbonate in the first batch, improving to battery grade lithium carbonate (99.6% lithium carbonate) from the pilot plant in March 2020.
A long five year journey through discovery, evaluation, permitting and pilot plant has confirmed that this project has a high grade, low impurity deposit. The final feasibility study is currently underway and expected as early as Q1-2021 along with the final EIA for the final construction permit. The company believes that the Tres Quebradas project is the third highest grade project in the world and the chemical makeup of the deposit should result in low operating costs and resultant high profitability.
To confirm this sentiment, a subsidiary of Contemporary Amperex Technology (CATL), a leading Chinese battery manufacturer and technology company, entered into an equity subscription agreement in September 2020 to invest $8.6 million in new equity in the company. CATL will have Board of Director representation and pre-emptive rights to participate in future equity offerings to maintain its proportionate ownership.
The investment by CATL increases the company’s cash holdings to approximately $37 million and aligns Neo Lithium with a significant global lithium-ion battery maker that specializes in the manufacturing of lithium-ion batteries for electric vehicles and energy storage systems, and battery management systems. It should also give the company access to additional expertise for future development.
There is no question that the world needs more lithium. As with any commodity, supply and demand are rarely in balance, so the best-in-class companies are always the lowest cost operators with the best resources. The company is one of 86 companies presenting at the 121 Mining Investment Online conference October 28-30, 2020. More exposure for a developing story and more investor interest is always good for a publicly listed company like Neo Lithium.
Frederick Kozak is a Professional Engineer with extensive oil and gas, and international business experience and has more than 25 years involved in capital markets ... <Read more about Frederick Kozak>